When an epidemic like the coronavirus erupts across the globe, it is necessary for governments to respond appropriately, and UK Chancellor Rishi Sunak’s first Budget speech since he succeeded Sajid Javid certainly does contain measures to fight coronavirus. Sunak’s budget includes provision of a £30 billion fiscal stimulus for the British economy at this time to ward off the impact of the coronavirus.
Is the Stimulus a Smart Approach?
The proposals the Chancellor has introduced include a three-point plan to ensure that the NHS receives millions and/or billions of pounds to combat the disease and to fund research into curing it. Statutory sick pay will be paid from day one instead of day four and it will also be available to all those who are advised to self-isolate, even if they do not have coronavirus symptoms.
Furthermore, the self-employed will get quicker and easier access to benefits, and those eligible for the contributory employment allowance will be able to claim from day one instead of day eight. The minimum income floor in the Universal Credit system will be temporarily removed. Sunak predicts that these measures will boost the welfare state by half a billion pounds.
Business confidence is no doubt being hammered by the global impact of COVID-19 and it is vital that companies continue to grow in order to prevent the economy from plummeting. That is why businesses with fewer than 250 employees who are having to provide statutory sick pay will be refunded by the Government in full. £2 billion will be available to 2 million businesses.
A temporary coronavirus interruption loan scheme will provide loans worth up to £1.2 billion to small and medium-sized businesses so that banks can lend in confidence.
Budget Measures Part of Overall Government Strategy
The Government’s response to COVID-19 ties in with its strategy to slash taxes for businesses, which is why the Budget was an ideal opportunity to announce that companies earning up to £51,000 will not have to pay business rates at all. Alison McGovern MP warned last year that the business rates system is “broken” as organizations like Tesco had witnessed their rates bill double to £700 million in the past ten years. Rates relief will halt the closure of high street shops like Marks & Spencer.
The British economy is in a strong position to resist the damaging effects of the coronavirus. As the Chancellor stated, growth is going to exceed an average of one percent over the next four years and the size of the deficit has shrunk since 2010. According to the Office of National Statistics, estimated employment rates for those aged between 16 and 64 years have generally been increasing since 2012, reaching a record-breaking high of 76.1 percent in early 2019.
Anti-Coronavirus Measures — Not Economic Stimulus — Should be the Government’s Focus
Nonetheless, the Government’s priority should be to focus on preventing the spread of the virus instead of increasing borrowing, as Doug Holtz-Eakin, the President of the American Action Forum and a former top economic adviser to George W. Bush and John McCain, told NY Mag when discussing the same situation in America.
There is no evidence that supply shocks can be fixed through fiscal stimulus. The public are becoming increasingly aware of preventative measures that they can take to stop the spread of the disease by washing their hands regularly and avoiding public gatherings if necessary. Demand is likely to rise sharply once the number of COVID-19 cases drops over time, and that will boost economic activity in the long-term.
Of course, the longer disasters last for, the more business confidence is hindered. That is why the sooner this country recovers from the coronavirus, the sooner companies can continue trading and remain open, which will avert the need for governments across the globe to provide businesses with capital.
The Chancellor’s Budget will certainly reassure many businesses, but increasing borrowing is not an adequate solution. Curbing the number of COVID-19 cases is the only way to restore economic confidence in the long-term.